Fewer homeowners use cash-out refis

In fact, an increasing number are paying down their debt when refinancing.

According to Freddie Mac, one of the big government-owned companies that buys home loans from banks and mortgage companies:

62% of homeowners refinancing their prime, first-lien mortgages took cash out of their homes in the final three months of 2008, down from a record 88% during the second and third quarters of 2006.

14% of refinancing homeowners put extra money into their home equity -- the most since 2004, when 19% put cash into their equity.

"We found that, on average, borrowers who refinanced were replacing a mortgage that was 3.6 years old, and over the time they had that mortgage, their home value was up by 9%," says Frank Nothaft, Freddie Mac vice president and chief economist.

About $115 billion in home equity was cashed out by homeowners in 2008 -- slightly less than half the amount that was cashed out in 2007.

The Midwest had the biggest amount of people putting cash into their home equity in 2008 -- 12%.

The South had the highest share of cash-out refinance loans -- 71%.

Of course, homeowners have less equity to tap, with home prices down about 20% from their 2006 peak.

But these are still smart trends to follow.

In good times, it can make a lot of sense to borrow an extra $20,000 or $30,000 with a low-cost mortgage and use that money to repay credit card bills or other high-cost debt.

But most borrowers refinancing in a recession should try to lower their monthly payments as much as possible.